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April 1, 1998
Roth IRA May Be Subject To Creditors And Intangible Tax In Florida
What is a Roth IRA?
- The Roth IRA was created in the 1997 Taxpayer Relief Act and became
effective January 1, 1998. It is codified in Internal Revenue Code Section
408A.
- Contributions to the Roth IRA are not deductible. However, contributed
amounts grow tax free and can be withdrawn tax free provided the IRA has been
open for at least five years and the distribution is made after an individual
reaches age 59 1/2, upon death or disability, or for first-time homebuyer
expenses (up to $10,000). The mandatory distribution rules applicable to
traditional IRAs do not apply.
- Contributions of up to $2,000 per year (reduced by amounts contributed to
traditional IRAs) may be made to Roth IRAs, even after age 70 1/2. This
contribution limit is reduced for taxpayers whose adjusted gross income exceeds
$95,000 ($150,000 for married individuals filing joint returns), and is
eliminated when adjusted gross income exceeds $110,000 ($160,000 for joint
returns).
- Taxpayers with adjusted gross income of less than $100,000 may convert their
traditional IRAs into Roth IRAs without the 10 percent tax on early withdrawals.
The amounts converted are included in income at the time of the conversion, but
if the conversion is made before January 1, 1999, the amount converted is
included in income ratably over the four-year period beginning with the year of
conversion.
Creditor Protection in Florida
- Pursuant to Florida Statutes Section 222.21, traditional IRAs are not
subject to the claims of the owner's creditors. F.S. Section 222.21 specifically
refers to Internal Revenue Code Section "408," which is the section that
establishes traditional IRAs. F.S. Section 222.21 does not, however, refer to
I.R.C. Section "408A," which is the new section that establishes Roth IRAs.
Persons who are creditor conscious may want to wait until the Florida
legislature amends F.S. Section 222.21 to include a specific reference to I.R.C.
Section 408A.
Roth IRAs Subject to Florida Intangible Tax
- Pursuant to Florida Statutes Section 199.185(1)(e), the value of traditional
IRAs are exempt from the Florida Intangible Tax. F.S. Section 199.185(1)(e)
specifically refers to Internal Revenue Code Section "408," which is the section
that establishes traditional IRAs. F.S. Section 199.185(1)(e) does not, however,
refer to I.R.C. Section "408A," which is the new section that establishes Roth
IRAs. Therefore, for Florida residents, amounts converted to a Roth IRA may be
subjected to the Florida Intangible Tax, unless and until the Florida
legislature amends F.S. Section 199.185(1)(e) to include a specific reference to
I.R.C. Section 408A.
The Estate and Income Tax Planning Alert is intended to keep
readers current on selected estate planning issues and is not intended to be
legal advice. For additional information, please contact Jerome L. Wolf
at 561/347-5101, Jonathan E. Gopman at 561/347-5103, Deborah Packer
Goodall at 954/768-5343 or Brett D. Marley at 561/347-5118.
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